Welcome to Trade Secrets. This week is the World Economic Forum in Davos, which means the usual blather about ESG and climate change, with any conversations of substance behind closed doors and the consequences only becoming obvious months later, if ever. Moving on, in today’s newsletter I look at the tricky position Sweden is in chairing the Council of the European Union for the next six months, stuck in a moment it can’t get out of. I also do one of my occasional drop-ins to see what the Brits are up to and find an unusual degree of attachment to reality, necessarily coupled with a reduction in ambition. Today’s Charted waters highlights Russia’s surprising export revenue earner: fertiliser.
Swede dreams, bitter EU reality
My Brussels colleagues have noted the tricky situation that Sweden finds itself in having just taken over the presidency of the council. It’s one of the last genuine free-trading countries in a union increasingly heading towards dirigisme, symbolised by the energetic French internal markets commissioner Thierry Breton.
The situation underlines, as I’ve written before, the peculiar effect of the rotating EU presidency whereby the country in charge can control the process but doesn’t get to change policy.
Sweden wants to counterbalance all the “defensive” (that is, potentially protectionist) tools the EU has armed itself with over the past few years — the anti-coercion instrument, the foreign subsidies regulation and so on — with a growth agenda including streamlining regulations and signing more trade agreements to allow European companies to diversify their markets and source from abroad rather than being forced to reshore.
Last week I talked to Anna Stellinger of the Confederation of Swedish Enterprise, who is Trade Secrets’ longtime Stockholm-whisperer and usually right about everything. She reckons the rebalancing process was making progress until the US Inflation Reduction Act and its trade-distorting tax credits got people scared.
“The US IRA has made a positive competitiveness agenda much harder — many in the EU have gone into reactive mode,” Stellinger says. “The ‘like-minded countries’ group [mainly northern economically liberal states] is in a state of flux, with more member states moving towards a seemingly interventionist agenda and Germany’s position still uncertain.”
One big win would be completing the EU-Mercosur deal, which remains signed but unratified. Along with updating the EU’s existing deals with Chile and Mexico, it would give European multinationals worried about China a diversification option. But the deal’s fate is largely in the hands of Brazil’s Luiz Inácio Lula da Silva, who might want to renegotiate the agreement, and Argentina, whose president doesn’t like the sound of it at all. Good luck to Sweden, but they’ve been given a hospital pass here for sure.
Welcome humility in post-Brexit Britain
After years of embarrassing boasts about Global Britain leading the way in trade diplomacy, some encouraging signs of reattachment to reality in the UK. One, the government in December abandoned its fantasy that it would somehow manage to shift the US’s position on the IRA tax credits by having a quiet chat to get America to change its ways — symptomatic of the familiar British delusion about getting concessions out of Washington by chuntering on about the special relationship, something, shared transatlantic future, something, Five Eyes, something, Winston Churchill something, something.
Instead, the UK managed to voice some actual criticism. It won’t have any effect, obviously. Britain was almost exactly a year behind the EU in speaking up, and unlike the bloc, Japan or South Korea, it doesn’t have big car industry investments in the US to provide a leverage point for lobbying. But still, it’s cheering to see one illusion apparently on the wane.
The other good news is the UK easing off the pretence that rolling over EU preferential trade deals plus signing new ones with economies on the other side of the planet, plus non-binding memoranda of understanding with individual US states, somehow constitutes blazing a trail for free trade. Instead, Politico reports, it’s now all about making sure British companies use the access they already have. Again, it’s nothing the UK couldn’t have done inside the EU (together with using Brussels’ souped-up enforcement regime), but at least it’s a reachable ambition — that is, a modest one.
There’s still the odd ridiculous claim about Brexit and trade when they can’t help themselves, obviously. But along with an apparent outbreak of common sense over the Northern Ireland Protocol, the UK appears to be moving towards implicitly (obviously not explicitly) accepting it’s made itself a second-rank trading power and acting accordingly. Progress, of a sort, setting things up nicely for a debate about returning to the EU single market in due course.
As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.
Charted waters
Russia’s weaponisation of its energy supplies is not going so well, but its coffers are being helped (some would say appropriately) by raking it in from muck.
My colleague Emiko Terazono writes that Russia’s revenues from fertiliser soared last year, despite a decline in total sales volumes. The country’s success in this market can be attributed to the invasion of Ukraine, which sent crop nutrient prices soaring.
Import statistics from Moscow’s trade partners show that, in volume terms, overseas sales by the world’s largest fertiliser exporter only fell 10 per cent from the same period the previous year, analysis by the UN Food and Agriculture Organization found.
This contrasts with analysts’ predictions at the time of Russia’s invasion that the price of fertiliser would collapse. Russia has been able to cash in on the rising prices because fertiliser, along with food, has been exempt from sanctions.
The good news in the battle to tame Russia is that the fertiliser boom is likely to end soon, as the second chart shows. Warmer temperatures have helped bring down gas prices and in turn the cost of fertiliser as other manufacturers have ramped up production. Good news for farmers. Bad news for the Kremlin. (Jonathan Moules)
Trade links
Nikkei reports how Thailand, a big car manufacturing centre in the region, has become a test case for the Chinese auto industry competing against Japan.
Sweden’s state-owned mining company says it has discovered Europe’s biggest deposit of rare earths, potentially reducing dependence on imports from China.
The Economist analyses how investment in ports presages the future of global commerce.
The FT’s editorial team identifies the reopening of China after the Covid-19 lockdowns as one of the biggest uncertainties in the global economy.
Japan, which has just taken over as chair of the G7 of advanced economies, has said it wants the grouping to take a united stand against economic coercion by China.
Trade Secrets is edited by Jonathan Moules
Source: Economy - ft.com
